The State Department under Cordell Hull moved forward with the trade
liberalization program that it had championed since the nineteenth
century. The 1934 Reciprocal Trade Agreements Act marked the beginning of
a successful U.S. effort to liberalize trade and create a multilateral
regime of commercial cooperation. The most important aspects of the RTAA
were institutional. Foremost, Congress ceded to the executive branch the
power to set and manage the trade agenda. Members of Congress voted to do
so partially in response to the fallout from the Smoot-Hawley Act and the
persistence and depth of depression. They were also persuaded by executive
branch promises to compensate producers that were harmed by subsequent
trade deals.

The RTAA formed the basis for the post–World War II multilateral
system that employed bilateral reciprocity to negotiate lower trade
barriers and enforce fair trade norms, and used unconditional MFN
treatment to spread the benefits of reciprocal bargaining. The State
Department used the RTAA to promote international trade, rather than just
U.S. exports, and its officials recognized that America had to lower its
trade barriers. In the run-up to World War II, the State Department
granted concessions on an unconditional MFN basis as part of an effort to
build an alliance to counter German and Japanese aggression. The RTAA
approach—equality of treatment, a negotiable tariff, and
executive-branch authority to negotiate agreements that would be binding
without congressional ratification—would become the framework for
international cooperation under the General Agreement on Tariffs and
Trade.

Many State Department officials were liberals in the nineteenth-century
tradition. They linked trade discrimination to political conflict. As
such, they believed in free trade, to which Britain adhered until 1932. At
the same time, they appreciated the power that Congress retained over
trade policy. Hull and his advisers therefore chose reciprocity as a way
to both lower trade barriers and placate members of Congress who remained
wedded to protection. Unconditional MFN treatment would be the tool to
maximize the benefit of bilateral treaties.

After keeping trade off the agenda during his first year of office to
concentrate on reviving and regulating the U.S. economy, President
Franklin D. Roosevelt proposed the RTAA to Congress, selling it as a
domestic recovery measure. To placate wary members of Congress, the
administration proposed no changes to the 1921 Anti-Dumping Act, retained
the countervailing duty provisions in section 338 of the Smoot-Hawley Act,
and agreed to subject the act to reauthorization in three years. The RTAA
also said nothing about dismantling protection. The State Department took
it upon itself to use both reciprocity and unconditional MFN
treatment—linked for the first time in U.S. trade policy—as
tools of trade liberalization.

In the interests of trade liberalization and international security, State
Department officials pressed for few concessions in the series of
negotiations that occurred before and during World War II. This was
especially the case with Europe. (In Latin America, U.S. officials
threatened to refuse to negotiate reciprocal trade and to withhold
Export-Import Bank credits and other financial assistance unless
governments satisfied their demands to settle debts in default to U.S.
bondholders, treat U.S. direct investment in a fair and equitable manner,
and adopt political reforms.) Determined to reverse the ill effects of
U.S. protectionism, U.S. trade negotiators offered concessions to Belgium,
Britain, Switzerland, and others, while tolerating trade barriers,
currency depreciation, and other actions that closed overseas markets to
U.S. products.

The State Department also decided to extend unconditional MFN treatment to
most third-party countries. Under the RTAA, it was unclear which countries
should be eligible to receive such treatment. The department moved
initially to extend concessions to countries that did not discriminate
against U.S. exports. Since all of America's major trading partners
continued to discriminate against U.S. products, however, the State
Department deemed this approach to be impractical. It concluded that the
administration should withhold benefits only when others'
discrimination was flagrant. In its view, such a stance would improve
relations among nations. It therefore singled out Nazi Germany for
retaliatory action. In moving in this direction, the State Department
departed from the bilateral approach to reciprocity for which Roosevelt
campaigned in 1932 and that Congress intended in the RTAA. (Roosevelt, his
"brain trust" advisers, and key cabinet officials such as
Treasury Secretary Henry Morgenthau Jr. doubted that the reciprocal trade
program could play the role that Hull designed for it in achieving either
the security or economic goals of the administration's foreign
policy. For Roosevelt, trade, like all matters of foreign economic policy,
took a backseat to domestic issues.)

In terms of expanding U.S. trade, the reciprocal trade agreements
concluded between 1934 and 1945 achieved limited results. But actual trade
expansion was secondary to building international cooperation against the
Axis threat. In arguing for extensions of the RTAA in 1937, 1940, 1943,
and 1945, State Department officials were explicit about the national
security role of the trade program. Moreover, the State Department became
convinced that the institutional structure of the RTAA, linking
reciprocity and unconditional MFN treatment, should serve as the basis for
constructing a post–World War II multilateral trade regime.

Hence, the linkage between reciprocity and unconditional MFN treatment was
translated into the norms of the General Agreement on Tariffs and Trade
(GATT). In the view of State Department analysts, economic autarky and
fascist aggression were bound together as causes of the world war. Thus,
political cooperation was possible only if economic cooperation was
established. During the war, State Department officials developed a
blueprint for the structure of commercial cooperation in the postwar
world. The lack of cooperation during the interwar period persuaded them
that economic nationalism was the root of instability in the international
system and degraded relations among nations. They resolved to make
nondiscrimination in trade the basis for economic cooperation, which they
believed was essential to an enduring postwar peace. The International
Trade Organization (ITO) would monitor commercial relations on the basis
of unconditional MFN treatment. But countries would also negotiate
bilaterally to both open markets and preserve their recourse to measures
to protect domestic producers and social welfare policies, as the RTAA
prescribed.

In 1947 the administration of Harry Truman invited countries, including
Russia, to Geneva, Switzerland, to negotiate a multilateral trade
agreement; twenty-four nations accepted the invitation. Although the
Soviet Union opted out of the process, twenty-three countries negotiated
bilaterally on a product-by-product basis. The bilateral pacts became the
multilateral GATT, since every signatory enjoyed unconditional MFN
treatment. The nine countries that felt they could adhere to the demands
of the treaty, accounting for 80 percent of world trade, implemented the
GATT on 1 January 1948.

The State Department supported a more liberal approach to trade policy
than the still-protectionist Congress and the other agencies of the
executive branch, most of which were solidly "New Deal" in
orientation. But it recognized political reality and retained the
"fair" trade elements of the Reciprocal Trade Agreements Act
in its negotiations for the International Trade Organization (and the
GATT, after Congress rejected the ITO over sovereignty issues). The
elements of the New Deal that provided for state responsibility for
economic growth and social welfare were not going to be repealed. The
United States, Great Britain, and other participants wanted to retain
flexibility on domestic economic policy even as they agreed to liberalize
international trade. And given their expectations regarding
America's position of leadership in the postwar order, U.S.
architects of postwar trade policy concluded that it was America's
responsibility to offer asymmetrical concessions in order to establish the
trade regime in which they were interested. Thus, unconditional MFN
treatment became the guiding principle of an emerging liberal regime that
retained the safeguards, restrictions, and exemptions of
"fair" trade. Parties to the GATT promised to consult each
other when conflicts arose and to resolve differences through a dispute
settlement procedure. Reciprocity would be used as an instrument of both
freer and fairer trade.

The GATT governed international trade until the World Trade Organization
was established on 1 January 1995. Beginning with the 1947 session in
Geneva, the GATT promoted trade liberalization through a series of
negotiating rounds. With the Kennedy Round (May 1964–January 1967),
negotiators adopted—with some exceptions—a formula for
across-the-board percentage cuts, doing away with bilateral negotiating.
For this round and the 1947 Geneva parley, Congress authorized tariff
reductions of up to 50 percent of existing rates. Both rounds reduced
tariffs some 35 percent. In both rounds, the U.S. promptly provided
concessions to its trading partners, even if, like western Europe in 1947
and Japan and many developing countries in 1964–1967, they lagged
in reciprocating. From 1947 to 1967, six GATT rounds removed tariffs as a
barrier to the U.S. market. In doing so, U.S. policymakers placed a higher
priority on stabilizing the American-led anticommunist alliance and
promoting the economic reconstruction of its allies than on shielding
domestic producers from foreign competition.